Regulation No. 06 on Capital Market Enforcement Guidance, 2012

Official Gazette n° 27bis of 02/07/2012
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REGULATION N° 06 ON CAPITAL MARKET ENFORCEMENT GUIDANCE, 2012

Pursuant to the Law N° 11/2011 of 18/05/2011 establishing the Capital Markets Authority especially in its articles 3 & 4

Pursuant to the Law N° 01/2011 of 10/02/2011 regulating the Capital market, especially in its article 74,

Pursuant to the Law N° 40/2011 of 20/09/2011 regulating the Collective Investment Schemes especially in its article 64,

The Capital Market Authority hereinafter referred to as the “AUTHORITY”, decrees:

CHAPTER 1: GENERAL INTRODUCTION

Article 1: Enforcement Powers

This guide describes the CMA's approach to exercising the main enforcement powers given to it by the Capital Markets Act 2011. It provides an overview of enforcement policy and process, with detail about the CMA's approach to enforcement, the use of its main information gathering and investigation powers, the conduct of investigations, settlement and publicity. This guide will be kept under review and amended as appropriate in the light of further experience and developing law and practice. The material in this guide is 'general guidance' as defined in the Capital Markets Authority Act 2011.

Article 2: The CMA’s approach to enforcement

There are a number of principles underlying the CMA's approach to the exercise of its enforcement powers:

The effectiveness of the regulatory regime depends to a significant extent on maintaining an open and co-operative relationship between the CMA and those it regulates.

The CMA will seek to exercise its enforcement powers in a manner that is transparent, proportionate, responsive to the issue, and consistent with its publicly stated policies.

The CMA will seek to ensure fair treatment when exercising its enforcement powers.

The CMA will aim to change the behaviour of the person who is the subject of its action, to deter future non-compliance by others, to eliminate any financial gain or benefit from non-compliance, and where appropriate, to remedy the harm caused by the non-compliance.

Enforcement is only one of a number of regulatory tools available to the CMA. As a risk based regulator with limited resources, throughout its work the CMA prioritises its resources in the areas which pose the biggest threat to its regulatory objectives.

Where a firm or other person has failed to comply with the requirements of the Act, the Regulations, or other relevant legislation, it may be appropriate to deal with this without the need for formal disciplinary or other enforcement action. The proactive supervision and monitoring of firms, and an open and co-operative relationship between firms and their supervisors, will, in some cases where a contravention has taken place, lead the CMA to decide against taking formal disciplinary action. However, in those cases, the CMA will expect the firm to act promptly in taking the necessary remedial action agreed with its supervisors to deal with the CMA's concerns. If the firm does not do this, the CMA may take disciplinary or other enforcement action in respect of the original contravention.

Article 3: Case selection

Other than in the area of a firm's failure to satisfy the CMA's threshold conditions for licensing the selection method for cases occurs at two main levels:

Strategic planning; and
Decisions on individual cases.

The CMA does not have a set of enforcement priorities that are distinct from the priorities of the CMA as a whole. Rather, the CMA consciously uses the enforcement tool to deliver its overall strategic priorities. The areas and issues which the CMA as an Organisation regards as priorities at any particular time are therefore key in determining at a strategic level how enforcement resource should be allocated.

This does not mean that the CMA will only take enforcement action in priority strategic areas. There will always be particularly serious cases where enforcement action is necessary, ad hoc cases of particular significance in markets, to protect consumers or in the context of financial crime or cases that the CMA thinks are necessary to achieve effective deterrence.

The combination of the priority given to certain types of misconduct over others and the CMA's risk-based approach to enforcement means that certain cases will be subject to enforcement action and others not, even where they may be similar in nature or impact. The CMA’s choice as to the use of the enforcement tool is therefore a question of how the CMA uses its resources effectively and efficiently and how it ensures that it is an effective regulator.

Before it proceeds with an investigation, the CMA will satisfy itself that there are grounds to investigate under the statutory provisions that give the CMA powers to appoint investigators. If the statutory test is met, it will decide whether to carry out an investigation after considering all the relevant circumstances.

Article 4: Case selection and Threshold Conditions cases

The CMA will take a different approach to that described above where firms no longer meet the threshold conditions. The CMA views the threshold conditions as being fundamental requirements for licensing and approval and it will generally take action in all such cases which come to its attention and which cannot be resolved through the use of supervisory tools. The CMA does not generally appoint investigators in such cases. Instead, firms are first given an opportunity to correct the failure. If the firm does not take the necessary remedial action, the CMA will consider whether its authorisation to carry out regulated business should be varied and/or cancelled. However, there may be cases where the CMA considers that a formal investigation into a threshold conditions concern is appropriate.

Article 5: Case selection and unauthorised business

Where this poses a significant risk to the consumer protection objective or to the CMA's other regulatory objectives, unlicensed activity will be a matter of serious concern for the CMA. The CMA deals with cases of suspected unlicensed activity in a number of ways. The CMA's primary aim in using its investigation and enforcement powers in the context of suspected unauthorised activities is to protect the interests of consumers.

The CMA's priority will be to confirm whether or not a regulated activity has been carried on in Rwanda by someone without licence or exemption, and, if so, the extent of that activity and whether other related contraventions have occurred.

It will seek to assess the risk to consumers' assets and interests arising from the activity as